Easing the squeeze: How do acquisitions relieve target firms’ financial constraints?

Sadok El Ghoul*, Zhaoran (Jason) Gong, Omrane Guedhami

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Using private firm financial data, we investigate how acquisitions alleviate financial constraints in private firms. We find that targets’ internal financing improves after acquisitions because they can retain higher proportions of earnings and borrow interest-free capital from their parent companies. Targets also receive better external financing as they obtain more debt financing with lower interest rates, borrow more trade credit from suppliers, and collect receivables from customers more quickly. Our findings suggest that internal and external financing improvements contribute to reducing targets’ financial constraints.

Original languageEnglish
Article number102673
JournalResearch in International Business and Finance
Volume74
DOIs
Publication statusPublished - Feb 2025

Keywords

  • Debt financing
  • Financial constraints
  • Intra-group borrowing
  • Mergers and acquisitions
  • Payout policy

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